Chapter 13 - 5/24/2011 1 Chapter 13 (14) Oligopoly and...

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Unformatted text preview: 5/24/2011 1 Chapter 13 (14) Oligopoly and Monopolistic Competition Anyone can win unless there happens to be a second entry. George Ade 14-2 ECO N201 – Spring 2011 Chapter 14 Outline 14.1 Market Structures 14.2 Cartels 14.3 Noncooperative Oligopoly 14.4 Cournot Oligopoly 14.5 Stackelberg Oligopoly Model 14.6 Comparison of Collusive, Cournot, Stackelberg, and Competitive Equilibria 14.7 Bertrand Oligopoly Model 14.8 Monopolistic Competition 14-3 ECO N201 – Spring 2011 14.1 Market Structures • Markets differ according to • the number of firms in the market, • the ease with which firms may enter and leave the market • the ability of firms to differentiate their products from rivals’ • Monopolistic competition is a market structure in which firms have market power but no additional firm can enter and earn a positive profit. • Example: laundry detergent • Oligopoly is a market structure in which a small group of firms each influence price and enjoy substantial barriers to entry. • Example: video game producers (Nintendo, Microsoft, Sony) 5/24/2011 2 14-4 ECO N201 – Spring 2011 14.1 Comparison of Market Structures 14-5 ECO N201 – Spring 2011 14.2 Cartels • Oligopolistic firms have an incentive to collude , coordinate setting their prices or quantities, so as to increase their profits. • Collusion is illegal in most developed countries. • A cartel, a group of firms that collude, is a special case of oligopoly in which the firms behave like a monopoly. • Because firms can make even more money by cheating on the cartel agreement, collusion is not always successful. 14-6 ECO N201 – Spring 2011 14.2 Why Cartels Form • Cartel members believe they can raise their profits, relative to competition, by coordinating their actions. 5/24/2011 3 14-7 ECO N201 – Spring 2011 14.2 Laws Against Cartels • Previously called trusts in the U.S. and common in oil, railroad, sugar, and tobacco industries • Sherman Antitrust Act (1890) and Federal Trade Commission Act (1914) • Prohibit firms from explicitly agreeing to take actions that reduce competition • Jointly setting price strictly prohibited • Antitrust laws reduce probability that cartels form • OPEC, most famous cartel, formed in 1960 (by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela) and is not illegal among participating countries. 14-8 ECO N201 – Spring 2011 Laws Against Cartels -Turkey • Article 167 of the Constitution entrusted the state with the duty and responsibility to take “the measures that ensure and improve the proper and organized functioning of markets for money, credit, capital, goods and services, and to prevent “ monopolization and cartelization likely to emerge in markets de facto or as a result of agreement....
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This note was uploaded on 03/22/2012 for the course ECON 201 taught by Professor Çakmak during the Fall '10 term at Middle East Technical University.

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Chapter 13 - 5/24/2011 1 Chapter 13 (14) Oligopoly and...

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